Rescues

A New Banking Bet for Billionaire Gerald Ford

May 06, 2010

Bank investor Gerald J. Ford is placing a new bet on the industry that made him a billionaire. Ford, who built his private equity business by purchasing faltering lenders during the savings and loan crisis, said last week he will inject $500 million into Pacific Capital Bancorp (PCBC) for 91 percent of the troubled California lender.

Ford, 65, has something of a golden touch when it comes to turning around distressed banks. In 1998 he and a group of investors bought California's Golden State Bancorp and turned it into the second-largest savings and loan in the U.S. It fetched about $5.3 billion when he sold it to Citigroup (C) in 2002. Ford walked away with more than 20 million Citigroup shares, which climbed 38 percent the next year to a value of more than $1 billion.

Santa Barbara-based Pacific Capital hasn't posted a profit since the first three months of 2008. In March the bank said that its survival was in doubt and that shareholders might be wiped out. The Federal Deposit Insurance Corp. is not offering any assistance to Pacific Capital, which is fine with Ford. He says the money he's provided, plus his experience in California banking, will help him revive the struggling lender. Ford bid unsuccessfully for several banks put on the block by the FDIC before agreeing to buy Pacific Capital. "We've been in the banking business on the West Coast before, and we liked it, and we think this is an outstanding franchise," he says. "We've been out there looking for a long time."

Ford, who is not related to the former U.S. President or founders of the U.S. automaking empire, entered the banking business in 1975 after receiving an economics degree and a law degree from Dallas-based Southern Methodist University, where a sports stadium is named after him. During the last banking shakeout in the 1980s, he and billionaire Ronald Perelman teamed up to acquire five debt-ridden thrifts, creating First Gibraltar Bank. They sold it in 1992. With part of the proceeds, they acquired San Francisco-based First Nationwide Bank from Ford Motor (F) in 1994, transforming it from a money-losing lender plagued by bad real estate loans into a profitable statewide thrift. The two bought Golden State Bancorp in 1998, merging it with the rest of the empire.

Ford also knows when to sell. He set up a plan to unload chunks of his Citigroup shares if the stock price fell to certain levels. He told Bloomberg in 2008 that he mostly got out at 45 a share. Citigroup shares now sell at 4.55.

The bottom line: With bank investments, Ford's timing has been excellent. Pacific Capital will put his turnaround skills to the test again.